Beat inflation with a savings account for your limited company

Is inflation eroding the value of your limited company current account balance? With ‘real’ inflation still well above 5%, many directors are transferring funds into interest-bearing savings accounts.

Successive rises push the official base rate rate over 5%

We have all been used to over a decade of very low interest rates. The BOE base rate remained at almost zero from 2009 to 2021.

Since reaching a low of 0.10% in March 2020, the Bank has steadily increased the base rate since December 2021 – to over 5% at the time of writing. Most economists expect the rate to plateau at around this level before possible cuts over the next year or so.

Despite the rise in the bank rate, it will come as no surprise that the major banks have not raised their interest rates in line with the official rate. In fact, many of us are still earning nothing at all on our limited company bank account balances.

With this in mind, we decided to scan various ‘best buy’ comparison sites to find out how much business owners could be earning on their spare funds – both profits, plus any funds required to pay future Corporation Tax and VAT bills.

There are various types of business bank account

In this guide, we look at the features of each type of account and list some of the most competitive offerings out there at the moment. We aren’t sponsored in any way by any of the financial institutions we’ve mentioned in this article.

Broadly speaking, business accounts fall into one of four categories:

  • Current accounts
  • Instant access savings accounts
  • Notice accounts
  • Fixed term accounts

Current accounts

We’re all familiar with this type of account. Variable interest rates apply if you’re lucky enough to receive any interest at all.

Shockingly, none of the major players pay any interest at all on current account deposits. The only exception appears to be in ‘premium’ type current accounts, which are only available to professional firms such as accountants of solicitors.

Given that interest rates are not a factor when comparing current account providers, there are plenty of other factors to consider including sign-up bonuses, cashback offers, customer service, ease of use and integrations with software such as FreeAgent.

You can read our guide to choosing the best current account for a limited company here.

Instant access accounts

You can withdraw funds at any time, as the name suggests. Interest rates are variable. This type of account will appeal to many company owners to earn a reasonable level of interest, but be able to instantly withdraw funds to pay tax bills, for example.

  • Tide Business Savings – 4.33% (you need to open a free Tide current account first)
  • Metro Bank – 4.07%
  • Cynergy Bank – 3.65%
  • Newcastle Building Society – 3.6%
  • Aldermore – 3.25%

Notice accounts

Notice accounts require a pre-agreed time limit before making a withdrawal – from 7 days onwards. Interest rates are variable. If you have business funds which you won’t need to pay dividends or tax bills in the near future, this type of account is a good bet.

  • United Trust Bank – 180 day notice – 5.25%
  • Cambridge & Counties Bank – 95 day notice – 4.5%
  • Recognise Bank – 180 day notice – 4.5%
  • Redwood Bank – 95 day notice – 4.3%

Term deposit accounts

This type of deposit account offers a fixed rate of interest for the pre-defined term – typically for between 1 and 5 years. Penalties apply for early withdrawal.

  • Metro Bank – 1 year bond – 5.52%
  • Reliance Bank – 1 year bond – 5.5%
  • Oxbury Bank – 1 year bond – 5.21%
  • Buckinghamshire BS – 1 year bond – 5.1%

Things to consider when choosing any type of business savings account

As you can see, many players are competing in the savings account market, including several unfamiliar names. Although the headline interest rate is important, there are several other things you should consider before opening a new savings account.

Is the account covered by the FSCS?

The government-backed Financial Services Compensation Scheme will protect your savings if your bank fails – as long as the financial institution is eligible.

According to the FSCS:

If a UK-authorised bank, building society or credit union fails, we’ll automatically compensate each eligible company depositor up to £85,000.

If you also have a personal account with the same bank as your limited company, both you and your company are covered for £85,000 – as you are a separate entity to your business.

Is my business eligible to apply?

You will need to have a business current account (from which to send and receive funds from your savings account). Your company needs to be UK-based, and the applicant needs to be over 18 years old.

Most business savings accounts are open to both sole traders and limited companies, however restrictions may apply to certain types of organisations, such as charities.

How do you open the account?

You can open most accounts online – the application process can take as little as 10 minutes. You will need details about your company (registration number, address, the individuals who control it), as well as details about the applicant(s) – such as date of birth, address, and contact details.

Your bank will need to carry out credit checks, and may ask for supporting documentation before you can use the account.

How can you manage the account?

Although many savings accounts are online-only (with telephone support), there are several options if you require branch access (e.g. Metro) or prefer to deal with your account via the post.

How often is interest paid?

Interest is typically paid either monthly or annually.

Is there a minimum deposit required?

Most instant access savings accounts only require a nominal minimum deposit – typically £1. Longer-term accounts will usually have minimum deposit requirements, particularly for term deposit accounts.

How is interest on your business accounts taxed?

Savings interest is taxed in the same way as other income into your limited company – contributing to your profits which are subject to Corporation Tax.

Unlike personal accounts, business accounts pay interest gross of tax. It is your company’s responsibility to pay any tax owed on interest received.

How many business savings accounts can your limited company have?

You can open as many as you want. If you’re concerned about breaching the FSCS £85,000 limit, you might decide to spread your funds across different providers. It’s up to you.

Tax-efficient protection for directors

  • limited company life cover